Myanmar Invites Foreign Bids for Onshore Oil, Gas Blocks

Myanmar has invited foreign energy companies to bid for the right to explore 18 onshore oil and gas blocks, but most Western oil majors are expected to wait until the country's bigger, more lucrative offshore blocks are on offer.

Bidders will be required to develop the blocks under production-sharing agreements with a state-owned company, a statement published Thursday in the state-run New Light of Myanmar newspaper said. Bids should be submitted by March 17, it said.

Foreign energy companies have watched Myanmar closely over the past two years, especially since the U.S. and European Union eased sanctions against the country after its quasi-civilian government, which took power in early 2011 after five decades of military rule, implemented widespread reforms.

Despite rising interest, top Western oil producers are expected to continue to watch from the sidelines until Myanmar's government offers offshore blocks that are considered larger and more lucrative.

"My sense is that the big players will probably skip this one and wait for the offshore blocks to come on offer," said Richard Nelson, a Singapore-based partner at Herbert Smith Freehills law firm who advises large international oil companies on Myanmar.

"We have clients who are keen to get more detail on the deep-water offshore blocks. That's where the big interest is," he said.

The tender announced Thursday marks the second offer of oil and gas fields to foreign investors since the new government took over. The first was held in 2011.

In June last year, state-owned energy company Myanma Oil and Gas Enterprise said it had signed nine agreements to allow companies, including Malaysia's Petroliam Nasional, Thailand's PTT PCL and India's Jubilant, to explore for oil and natural gas onshore.

A number of the blocks listed in the new tender were also offered--but not awarded--in the first tender.

Myanmar's government had planned to offer 23 offshore blocks in mid-2012, but postponed the tender several times due to concerns about transparency raised by international companies and delays in the passage of a new foreign investment law that was finalized in November.

Myanmar is estimated to have huge oil and gas reserves but few fields are currently producing and most deposits remain unexplored by Western oil companies. Proven reserves last year stood at 2.1 billion barrels of oil and 25 trillion cubic feet of natural gas--and most of that offshore, according to Myanmar's energy ministry.

The country hopes to attract more investment from Western companies as part of efforts to limit its dependence on neighboring China--a close ally over the past two decades that remains a major investor. In a bid to diversify its energy routes, China is now building twin oil and gas pipelines from the Bay of Bengal to the Chinese border in northern Myanmar, which is also known as Burma.

Western oil companies are likely to tread carefully, though. Despite fast-paced reforms, political risk in Myanmar is high and corruption is entrenched. Last year, U.S. senators John McCain and Joseph Lieberman urged companies not to do business with MOGE, which has long been accused of corruption and lack of transparency.

France's Total SA and U.S. major Chevron Corp., which operate the Yadana offshore natural gas project, faced harsh criticism from human-rights groups for operating in the country during the rule of the previous military junta.

In recent signs of rising foreign interest in Myanmar's oil and gas, Australia's Woodside Petroleum Ltd. last month agreed to acquire a 50% stake in the A-6 block in Myanmar's offshore Rakhine Basin. In October, the company acquired a 40% stake in Daewoo International Corp.'s production-sharing contract for Block AD-7, also in the Rakhine Basin.

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